Correlation Between Hyundai Engineering and Woori Financial

Can any of the company-specific risk be diversified away by investing in both Hyundai Engineering and Woori Financial at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Hyundai Engineering and Woori Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hyundai Engineering Plastics and Woori Financial Group, you can compare the effects of market volatilities on Hyundai Engineering and Woori Financial and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Hyundai Engineering with a short position of Woori Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hyundai Engineering and Woori Financial.

Diversification Opportunities for Hyundai Engineering and Woori Financial

0.4

Correlation Coefficient

Hyundai Engineering  Woori Financial

Very weak diversification

The 3 months correlation between Hyundai and Woori is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hyundai Engineering Plastics and Woori Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Woori Financial Group and Hyundai Engineering is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Hyundai Engineering Plastics are associated (or correlated) with Woori Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Woori Financial Group has no effect on the direction of Hyundai Engineering i.e., Hyundai Engineering and Woori Financial go up and down completely randomly.

Pair Corralation between Hyundai Engineering and Woori Financial

Assuming the 90 days trading horizon Hyundai Engineering is expected to generate 27.35 times less return on investment than Woori Financial. But when comparing it to its historical volatility, Hyundai Engineering Plastics is 1.71 times less risky than Woori Financial. It trades about 0.01 of its potential returns per unit of risk. Woori Financial Group is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,501,309  in Woori Financial Group on December 25, 2024 and sell it today you would earn a total of  191,691  from holding Woori Financial Group or generate 12.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Hyundai Engineering Plastics  vs.  Woori Financial Group

Hyundai Engineering

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hyundai Engineering Plastics has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Hyundai Engineering is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Woori Financial Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Woori Financial Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Woori Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hyundai Engineering and Woori Financial

The main advantage of trading using opposite Hyundai Engineering and Woori Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hyundai Engineering position performs unexpectedly, Woori Financial can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Woori Financial will offset losses from the drop in Woori Financial's long position.

The idea behind Hyundai Engineering Plastics and Woori Financial Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.